History of tax avoidance by Peter Sondakh and his companies highlight disrespect of nation’s laws

A due diligence report by KPMG for FGV in relation to the Eagle High acquisition, which was sighted by IPOM, has detailed how Eagle High which is controlled by Indonesian tycoon Peter Sondakh has deliberately avoided tax payment to the Indonesian tax authorities. Peter Sondakh and his companies have a history of tax avoidance scandals thereby blatantly breaking and disrespecting Indonesian tax laws.

The KPMG report highlighted that Eagle High has potentially underpaid taxes by USD3.7 million in corporate income tax alone. Further, certain Eagle High subsidiaries have falsely claimed that they had prepaid tax when filing their annual returns, which further exposes them to interest penalties. There is also a potential exposure of close to USD2 million in value added tax (VAT), USD15.8 million withholding tax (WHT) and various other potential tax exposures that KPMG was not able to quantify due to lack of data provided to them by the management of Eagle High. In addition to the above, there is also a risk of the Indonesian tax authority imposing penalties for the various underpayments and false filing of taxes.

A large portion of the exposure, USD8.7 million is due to WHT on non-interest bearing loans to Eagle High’s related parties. It was also reported that USD26 million was given to the Rajawali Group as an interest free advance by Eagle High.

With the rumoured sale of FGV to Eagle High (and thus Rajawali), will FGV, a Malaysian legacy be left in the hands of a businessman who has very questionable business practices and whose companies have a blatant disregard of tax laws? Will FGV be dragged into this web of tax avoidance and underpayment practices given the history of how the Rajawali Group runs its businesses?

This will further add fuel to the fire as Felda settlers (who are mostly Malay) own FGV shares will be left in a lurch once again. If the sale goes through, the voice of these settlers will be not be heard at all without Felda being in the mix to champion their rights. That being said, Felda’s role in championing the rights of the Malay majority settlers has come into question many times, with many settlers wondering why they are still living below the poverty line despite being landowners.

Another more detrimental issue to the settlers should the sale go through is the flow of dividends to them. Will FGV’s funds be channelled towards covering for Rajawali’s many shady business practices instead of flowing to its minority shareholders?

Also, when the Indonesian taxman comes calling, will FGV be made to settle the debts owed by Eagle High to the Indonesian tax authorities, thereby reducing the flow of profits or dividends to its remaining Malaysian shareholders, namely the Felda settlers?